ONCA: No Duty to Mitigate Unless Offer Made After Termination

Where an employer’s restructuring serves a legitimate business interest and is not merely a pretext for terminating an employee, should that employee be obliged, as part of his duty to mitigate, to return to work for the same employer? According to a recent decision from the Court of Appeal for Ontario, Farwell v. Citair, Inc. (General Coach Canada), 2014 ONCA 177, the answer is unclear. What is clear, however, is that in order for an employer to avail itself of the argument that an employee has failed to mitigate his damages by returning to work for the dismissing employer, (see: Evans v. Teamsters Local Union No. 31, 2008 SCC 20 (CanLII), [2008] 1 SCR 661,) the employer must offer the alternate position to the dismissed employee after termination, not before.

Facts

In the Farwell case, the Court of Appeal affirmed the decision of the Honourable Justice Johanne N. Morissette of the Superior Court of Justice that Mr. Farwell was constructively dismissed when he was essentially demoted from Vice-President of Operations to Purchasing Manager.

Following the trial of the case, Justice Morissette held that Mr. Farwell had been constructively dismissed and was entitled to 24 months’ notice, given his age (58), years of experience (38), and the character of his employment (senior management.)

Critical to this post, Justice Morissette held that Mr. Farwell did not have an obligation to mitigate his damages by accepting the position of purchasing manager. Had Mr. Farwell done so, his damages would have been severely limited.

In reaching her decision on this point, Justice Morissette held that to require Mr. Farwell to return to the position that he had held many years earlier, would be humiliating and embarrassing for him. Citing the Supreme Court of Canada’s decision in Evans, Justice Morissette held that requiring Mr. Farwell to engage in such a humiliating endeavour in order to mitigate his damages would be unreasonable.

The Employer’s Argument on Appeal

On appeal the employer argued that there was a consensus view of the witnesses that Mr. Farwell was an “exemplary employee,” and that there was evidence that Mr. Farwell had previously excelled as purchasing manager. The employer’s view was that he was simply mismatched as operations manager. The employer also relied on the evidence that Mr. Farwell’s superior repeatedly pressed him to remain with the company, and that Mr. Farwell enjoyed a good working relationship with his colleagues and commanded respect in the purchasing manager role.

To those arguments, the employer added that the evidence showed that the dismissal was motivated by economic considerations and not by any animus against Mr. Farwell. The employer had recently adopted a new product focus in which Mr. Farwell’s immediate subordinate was the expert, and he was not; the restructuring of its management personnel was a consequence of its evolving business model in tough economic times and was not meant to stigmatize him.

The employer thus argued that in circumstances such as these, where the employer’s restructuring serves a legitimate business interest and is not merely a pretext for terminating an employee, an employee like Mr. Farwell should be obliged, as part of his duty to mitigate, to return to work for the same employer, at least for the notice period, despite the constructive dismissal.

Decision of the Court of Appeal for Ontario

Writing for the unanimous Court of Appeal for Ontario, the Honourable Justice Peter Lauwers entertained the appellant employer’s arguments, signalling that he may have been inclined to give effect to them, writing:

There may well be merit in the appellant’s argument that the trial judge took a subjective approach in assessing “work atmosphere, stigma and loss of dignity” for the purposes of mitigation, rather than the required objective approach. There may also be merit in the argument that the circumstances here would support the imposition of an obligation on Mr. Farwell to mitigate by working through the notice period.

However, in dismissing the appeal and upholding Justice Morissette’s decision, Justice Lauwers noted a second problem for the employer:

…the appellant faces another obstacle, which, in my view, is insurmountable. To paraphrase Evans, the appellant’s mitigation argument presupposes that the employer has offered the employee a chance to mitigate damages by returning to work. To trigger this form of mitigation duty, the appellant was therefore obliged to offer Mr. Farwell the clear opportunity to work out the notice period after he refused to accept the position of Purchasing Manager and told the Appellant that he was treating the reorganization as constructive and wrongful dismissal.

There is no evidence that the appellant extended such an offer to Mr. Farwell. Accordingly, Mr. Farwell did not breach his mitigation obligation by not returning to work.

Commetary

It was hard not to hear the Price is Right ‘losing horn’ after reading the decision.

Reading Justice Lauwer’s comments with respect to the reasonableness of the position, one is certainly left with the impression that had only the employer made the offer of purchasing manager one more time, i.e. after acknowledging that making such an offer in the first place was tantamount to constructive dismissal, the Court of Appeal may have gone the other way.

I have to admit, I am a little confused by how this decision would play out in reality.

The directions from the court are clear in the case of an actual dismissal: If the employer dismisses the employee and wants to engage the employee’s duty to mitigate, then the employer must offer an alternate position at the time of dismissal. If the employer does not make such an offer, then no obligation can be imposed on the employee; an employee cannot be obliged to take a position that has not been offered to him.

However, in the case of constructive dismissal the situation is confusing. In this case, the employer sprung the decision to demote Mr. Farwell upon him. Mr. Farwell disagreed with the position taken by his employer and claimed constructive dismissal. By all reasonable accounts, Mr. Farwell was correct; he had been constructively dismissed. However, as I understand this case, what the employer was then obligated to do was say to Mr. Farwell, ‘We accept that we constructively dismissed you when we offered you the position of purchasing manager without notice. However, in order to mitigate your damages, we’d like you to stay on in employment with us… in the position of purchasing manager.’ It seems confusing.

As I think this matter through, I agree with the outcome, but not the Court of Appeal’s logic. Mr. Farwell was constructively dismissed when he was advised, without notice, that he would be demoted from the position of Vice President. That is the moment of termination. The offer of Mr. Farwell becoming the purchasing manager thus did, at least in my opinion, follow the termination. The offer having been made in accordance with the court’s expected chronology, the analysis of whether accepting such a position would expose Mr. Farwell to an atmosphere of humiliation and embarrassment would still have to be undertaken.

Takeaways for Employers

The takeaway for employees is that the rule that an employee must sometime mitigate his damages by accepting alternate employment with his dismissing employer is still good law. So long as the offer of a new position is made after notice of termination is provided, the employee has an obligation to consider the offer and accept it unless to do so would be unreasonable.

Whether an employee should accept such an offer or whether the offer is unreasonable, and whether an employee has been constructively dismissed in the first place, is a decision that should only be taken on the provision of legal advice.

Takeaways for Employees

The takeaways for employers are that the court may be prepared to accept economic restructuring as a legitimate reason for reorganizing one’s workforce. However, in making fundamental changes to an employee’s employment, employers must be aware of the consequences of triggering a constructive dismissal.

In order for an employer to avail itself of the right to require an employee to work through the required notice period (thus avoiding or mitigating the obligation on the employer to provide the employee with a severance payment or payment in lieu of notice,) the employer must advise the employee of the alternate position after termination. On the authority of this case, the employer cannot advise the employee that there may be another position available, ask the employee whether he wants it, and then if the employee says no rely on that offer as grounds for a mitigation argument.

Perhaps the most important takeaway for employers from this case, is that before taking any decisions with respect to terms of an employee’s employment, it may be prudent to see experienced legal advice.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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